Wisconsin investment advisor charged with engaging in kickback scheme

by AccountingWeb on May 26 2009printer friendly

The Securities and Exchange Commission has obtained an emergency court order to freeze the assets of an Appleton, WI-based investment adviser charged with engaging in a kickback scheme and other fraudulent conduct involving six unregistered investment pools it managed.

The SEC alleges that James Putman, who is the founder, majority owner, and CEO of Wealth Management LLC, and Simone Fevola, who is the firm's former President and Chief Investment Officer, each accepted $1.24 million in undisclosed payments derived from investments made by the unregistered investment pools. The SEC also alleges that Wealth Management, Putman and Fevola misrepresented the safety and stability of the two largest investment pools and placed clients into these investments even though they were inconsistent with some clients' objectives.

The emergency court order issued by U.S. District Judge William Greisbach last week freezes the assets of Wealth Management and the investment pools, and a receiver is to take control of the operations of Wealth Management and the investment pools.

"As we allege in our complaint, Putman and Fevola put their own financial greed ahead of the safety and stability of their clients' investments," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office. "They abused the trust that their clients placed in them, and emergency enforcement action was necessary to prevent further harm to those clients."

According to the SEC's complaint, Wealth Management, Putman, and Fevola caused clients to invest in the pools throughout the period of May 2003 through August 2008, and Wealth Management claims to currently have approximately $102 million of its clients' assets invested in these pools. The SEC's complaint alleges that the pools' assets are largely illiquid, the reported values of their assets appear to be substantially overstated, and Wealth Management and Putman have been providing redemptions to investors based on likely overstated valuations.

The SEC's complaint charges each of the defendants with violations of the antifraud provisions of the federal securities laws, and Putman and Fevola with aiding and abetting Wealth Management's violations. In addition to seeking emergency relief, the SEC's complaint seeks permanent injunctions barring future violations of the charged provisions of the federal securities laws, disgorgement of the defendants' ill-gotten gains plus pre-judgment interest, and financial penalties from the defendants.